It’s no secret that downtown San Francisco’s retail landscape is struggling.
Union Square, one of the city’s primary commercial hubs, has seen numerous retailers exit over the past few years. A short list includes Zara, The North Face, H&M, Gap, and Uniqlo. Barry DiRaimondo, CEO of commercial real estate developer SteelWave, didn’t underplay the struggles the city has faced but said it’s not entirely doom and gloom.
“A lot of the negative rhetoric surrounding San Francisco is probably a little bit more overblown than reality,” he told Retail Brew. “Having said that, I do think the retail industry, especially the high-end retail industry in San Francisco, has completely taken it on the chin.”
How’d we get here? San Francisco faced many of the same challenges other major cities’ retail districts faced during the pandemic. Work from home and office closures halted foot traffic, but in the case of San Francisco, more than four years later, DiRaimondo said its offices have not recovered, compared to other cities like New York.
- According to Census data, 27% of San Francisco’s metro area workers worked from home in 2022, compared to the 15.2% national average.
- At the end of Q4 2023, the San Francisco office market vacancy rate hit an all-time high of 35.6%, according to Coldwell Banker Richard Ellis.
San Francisco’s retail vacancy rate in 2019 was one of the lowest in the country, but as of last December now has one of the highest at 5.9%, according to CoStar.
“You’ve just got this trend towards efficiency, and it’s all compounding to tell us that we have a supply problem,” DiRaimondo said. “There’s still demand, but I will say that demand has been on a steady dose of Ozempic for the last four years.”
New hope: DiRaimondo said concerns regarding San Francisco’s broader retail real estate market are a bit overblown because in the residential areas of the city, where people and foot traffic are in abundance, retail is doing fine, in his assessment.
- But high-end retail, specifically, is typically located downtown, where far fewer people actually live.
- In fact, it appears tourists are the primary shoppers keeping the remaining high-end retailers alive downtown. Luxury retailers such as Van Cleef & Arpels, Patek Philippe, Chanel, and Saint Laurent have opened or announced openings in the city, the Wall Street Journal reported.
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Just last week, luxury retail Bulgari announced plans to occupy The North Face’s former space in the Union Square neighborhood, committing to a 10-year lease that starts in 2025.
“This new location, in the heart of the city, is the perfect environment for the brand to express itself and welcome our clients,” Vincenzo Pujia, EVP of global sales and retail for Bulgari, said in a statement.
Looking ahead: In DiRaimondo’s view, the city has taken the right steps to repair the city’s downtown retail. Retail theft in San Francisco has made headlines recently, but the city’s police department said they saw a 35% drop in incidents over the first half of 2023.
- Aside from work from home policies, DiRaimondo said the city will also have to incentivize residents to live downtown, which will require changes in zoning laws, a reshuffling of planning efforts from the city, and could take over a decade.
“You have to create environments where you’ve got people living, working, and playing in the same neighborhood, and that’s going to take time,” he said. “But I don’t think you have to move the needle all at once; you can do it incrementally. The good news is I think the city is incrementally moving in the right direction.”